Impact Of Environmental Accounting And Reporting On Corporate Performance In Nigeria

Project and Seminar Material for Accountancy / Accounting

Impact Of Environmental Accounting And Reporting On Corporate Performance In Nigeria


Profit maximization goal has been a preserve for most firms listed on the Nigeria Stock Exchange. There has been a growing interest among various stakeholders to consider preservation of resources that originate from the environment. Environmental degradation has become a challenge that firms need to address even as they aim at achieving profitability. This study aimed at establishing the relationship between environmental accounting and reporting practices and profitability of manufacturing firms listed on the Nigeria Stock Exchange. This study used descriptive research design and the population of the study comprised of 10 manufacturing firms listed at the NSE as at 31st December 2016. Secondary data was used for the study and was collected from published financial reports of the firms under study, NSE handbook and CMA website. The period of study was from 2014 to 2016. Data was analyzed using SPSS and a regression model was used to determine the relationship between profitability and environmental accounting and reporting practices. The study established a positive relationship between profitability measured by ROA and the independent variables of the study (EARI, LQ and LV). The independent variables contribute 27% of the profitability of firms. Firms should therefore include environmental accounting and reporting practice as part of the strategy to attain profit.

Chapter One


1.1 Background to the Study

Current accounting as opposed to traditional accounting, does not only consider record keeping and reporting of information to the investors, it aspires to fulfill the information needs of a wide range of internal and external stakeholders. (Gupta, 2011). Modern day accounting has experienced rapid changes leading to it being considered a service industry. It is expected to serve the society as a whole instead of serving shareholders and managers only. (Abdullah, 2013).

The increase in public concern on the alarming impact of industrial activities on nature has compelled companies to minimize the negative impacts of their operations on the environment. Environmental accountability has proven to be an important part of life to an extent that the performance of firms is being determined not only on the financial performance through financial results but also on its efforts to preserve and improve its immediate environment. (Gupta, 2011). Stakeholders are currently assessing risks of investing in any firm by considering environmental issues addressed by the companies. In order to remain viable, firms are forced to adapt to their surrounding environment. Including environmental performance in the reports of a company is a certain way to meet the rising need for environmental information. (Kalunda 2007).

The need for environmental accounting information has resulted to the concept of environmental accounting and reporting. Environmental disclosures have become a necessary part of corporate accounting and reporting systems. (Gupta, 2011). Firms are faced with the challenge of preserving the scarce resources and operating at optimum profit levels. Firms listed on the Nigeria Stock Exchange are expected to publish their financial statements.
Environmental reporting remains to be voluntary in the country. Firms are therefore not compelled to disclose their environmental activities and impacts thereof.

Environmental accounting has been defined as the process of identification, compilation, estimation and analysis of environmental cost information for better decision making within the firm. (Gupta, 2011)

Gray et al (1996) defines environmental reporting as the process by which an organization communicates the environmental effects of its economic actions to particular interest groups within the society and to society at large. It is an area of study that is developing and its main objective is to identify, measure and communicate the costs from a company’s actual or potential environmental impact. The major objective of environmental accounting is to outline the environmental cost for every process and separating environmental costs from non-environmental costs. (Jepkogei, 2015).

Firms listed on the Nigeria Stock Exchange are required by statute to publish annual reports. These reports are used as a means of communicating both qualitative and quantitative information to the shareholders and other users of financial information. Preparation of annual financial reports is a statutory requirement for all firms listed on the Nigeria Stock Exchange. Firms can disclose additional information on a voluntary basis. (Barako, Hancock and Izan, 2006). Environmental reporting is part of voluntary disclosures by firms.

Profitability is when a firm uses its resources to generate revenues in excess of its expenses. (Scrivastava, 2005). It is when profit is the result of its operations. Most financial statements are assessed and analyzed to determine the level of profitability. Firms set goals and profitability is always part of the goals. Strategies are then incorporated to facilitate achievement of the goals set. It’s the managers that are entrusted with the duty of achieving the goals set. This is made possible by the decisions they make. In some instances, managers are rewarded for achieving the set profitability goals. (Chandra, 2002).

Profitability is a measure of a firm’s financial performance. The measures of profitability will be of interest to shareholders and management of the company. Profitability ratios are commonly used to measure overall efficiency of a firm in generating returns. (Khan and Jain, 2003).

There are various studies carried out to identify the relationship between environmental accounting and reporting and the profitability of firms. Most of these studies have not been conclusive. This is because varying conclusions have been made on the same studies.

Some studies conclude that a positive relationship exists between the two concepts. According to Bowman (1975), shareholders and other users of environmental information consider environmental reporting as a symbol of reputation. A firm’s reputation is therefore improved by the activities they involve in to preserve the environment. As a result of the good reputation, a firm’s financial performance also improves in the long run.

Other studies concluded that firms engaging in Environmental Accounting and reporting incur costs which lead to competitive disadvantage since the costs reduce profit (Ogolla, 2009).

Other studies have been carried out with profitability as the independent variable while environmental accounting and reporting as the dependent variable. There are also two arguments concerning this perspective. The first one concludes that more profitable firms are likely to disclose more information on their environmental performance when compared to less profitable firms. (Akerlof, 1970). The rationale behind this argument is that profitable companies have enough financial resources that permit them to engage in environmental accounting and reporting when compared to less profitable companies.

Skinner (1994) gives a contrary view by stating that less profitable firms are likely to disclose more information as compared to profitable firms. This is because the less profitable firms tend to disclose more information as a means to explain the reasons for the poor performance and aim to assure users of the information of future growth prospects.

Nigeria Securities Exchange is an active market for trading both primary and secondary securities. It was formely known as the Nairobi Stock Exchange. It is the main securities exchange. Founded in 1954, Nigeria Stock Exchange has grown to become a leading African Exchange based in Kenya. It is considered one of the fastest growing in the region of Sub-Saharan Africa. (, 2017)

The NSE plays an important role in the growth of the nation’s economy. This is because it encourages savings, investment and by assisting local and international firms to access cost effective capital. Other than providing a platform where securities are exchanged, Nigeria Stock Exchange is also tasked with protecting investors. The investors are to be protected from unscrupulous brokers and ensure a high investor confidence is maintained in the securities market.

There are thirteen classifications of sectors in the Nigeria Stock Exchange. This study focused on the 10 companies listed under the category of manufacturing and allied on the Nigeria Stock Exchange as at 31st December 2016. Firms under this classification are expected to be environmentally responsible because of the emissions that result during manufacturing. Firms in the manufacturing sector have to meet the requirements of operations as directed by National Environment Management Authority. (, 2017).

1.2 Statement of the Problem

Many firms are operating with the goal of profit maximization. The input resources for these firms originate from the environment. Firms being among the largest users of natural resources are therefore faced with the problem of depleting natural resources arising from their economic activities. As a result, there has been a growing interest for environmentally responsible firms within the society. This has led to the rapid growth in environmental accounting and reporting practices by firms.

The main issue arising with the depleting resources is the ability of firms to improve financial performance without compromising on the environmental protection. Various studies have been carried out in the area of environmental accounting and reporting with the aim of identifying the relationship that exists between environmental accounting and reporting and financial performance.

In their study of the impact of environmental accounting and reporting on the organizational performance of oil industries in Nigeria, Bassey, Sunday and Okon. (2013) concluded that environmental related cost management has a positive influence on firm’s profitability and in turn enhances organizational performance. They also concluded that environmentally friendly firms disclose significant environmental related information in financial reports.
Mogaka and Jagongo (2013) while studying the relationship between environmental accounting and profitability in India found a significant negative relationship between environmental accounting and Return on Capital Employed and Earnings Per Share while a significant positive relationship between Environmental Accounting and Net Profit Margin and Dividends Per Share.

Locally, a research conducted by Magara (2015) to find out the effect of environmental accounting on company financial performance in Kisii County, revealed that tracking environmental cost savings together with compliance of environmental laws were significantly positively related to the dependent variable; perceived financial performance. Odhiambo (2015) established that a relationship exists between environmental accounting and reporting and financial performance. He used capital intensity and efficiency as the control independent variable, while financial performance was measured using return on assets.

Rono (2016) found out in his study on drivers of environmental reporting practices that profitability and financial leverage had a negative association with environmental reporting index.

Despite the numerous and broad research done on effects of environmental accounting, conclusive findings have not been realized. This area of study is therefore inexhaustible and attracts the attention of researchers. Most of the researchers have recommended that further studies be done in this area.

1.3 Objective of the Study

To establish the relationship between environmental accounting and reporting practices and profitability of manufacturing firms listed on the Nigeria Stock Exchange.

1.4 Research Question

The following research question will be answered by the study

  1. What is the relationship between environmental accounting and reporting practices and profitability of manufacturing firms listed on the Nigeria Stock Exchange?

1.5 Hypothesis of the Study

The following hypotheses was formulated and tested by the study

Ho: there is on relationship between environmental accounting and reporting practices and profitability of manufacturing firms listed on the Nigeria Stock Exchange

Hi: there is relationship between environmental accounting and reporting practices and profitability of manufacturing firms listed on the Nigeria Stock Exchange

1.6 Significance of Study

This study has a number of significant dimensions to it. The result of this study should provide information to the public, private and NGOs organizations.

The finding of the study will enable the enterprises to discover the expenditure habits of the various departments or units that make up the enterprises. Armed with the knowledge, the enterprise patterns their productive activities to suit the various departments of the enterprise and the members of the public.

More importantly, if organizations in Nigeria properly embrace social accounting techniques as enterprise development activities will help boost their financial performance or profit earnings. This will in turn lead to an improvement in the enterprises which will equally benefit the government, the stakeholders in the business enterprise and voluntary organizations.

This study will equally assist organizations to know how to apply social accounting techniques to make future development plan of the business enterprises. More so, it will be of immense help to those in marketing business, consultancy firm, audit, management firm, production to forecast profit plan by the way of adopting strategic plan of action.

The recommendations of the study should serve as important palliatives for the various economic and structural ills.

The study will be very relevant to scholars and researchers since it will add to existing body of knowledge. The findings and conclusions will add information to the research field.

The findings of this study will assist manufacturing companies in decision making as they strategize to attain profits in their business.

1.7 Scope of the Study

The subject matter is very deep and broad topic. The depth lies in the secrecy of the real account of what actual happens at the management and stakeholders. The scope proper covers reporting of accounting information to parties involve in the enterprise and relating the information to the external environment within Nigeria
More thorough analysis of the subject matter will be requiring the ability of undiluted financial/audit and non financial details about the industry. Therefore total reliance on the published facts may limit the chances of optimum result of the research work.

1.8 Limitations of the Study

The researcher encountered problems during the course of carrying out this research; such problems were as a result of selected respondents who refused to accept and participate and also encountered difficulty in acquiring relevant materials and items. The attitude of selected subjects to fill the questionnaire to time so as not to delay the result of the research also posed a problem. However, the researcher appealed to the participants through persuasive means.

1.9 Definition of Terms

The major terms that relate to this work are listed and defined as follows:


The Institute of Social and Ethical Accounting. This is an international professional body committed to strengthening social responsibility and ethical behavior of the business community and non- profit organizations.

Principles of AA1000 AND SA8000:

These are the principles or process of continuous improvement through iteration over time and setting performance standard in an organization/enterprise.


This is a project that aims to help organization, irrespective of their size or sector to address sustainability issues in a strategic and integrated fashion.


The Ethical Trading Initiative is a tripartite initiative. This is a U.K development NGO’s which provide a learning space where different approaches to monitoring code of corporate conduct could be reviewed.

GRI (Global Reporting Initiative)

This provides reporting guidelines for the content of sustainability reports which cover the Economic, Social and Environmental factors of the organization.

Business Enterprises:

This, as used in this study refers to all business activities include private, public and NGO’s.

SAT (Social Accounting Techniques)

This is a suitable tool for estimating the distribution of enterprises earnings.

1.10 Organizations of the Study

The chapter one consist of the introductory part of the study which includes the study background, the statement of the research problem, the study objective and scope of the study.

The second chapter is a critical review of other literatures relevant to the study and its objectives including the theoretical framework for the study. While the third chapter is methods of data collection, sampling and data analysis used in conducting the study. The fourth chapter centres around the research findings including an analysis of how it relates to previous findings. The fifth chapter consists of the summary of findings, conclusion and recommendations base on the study objectives.

Chapter Five

Summary of Findings, Conclusions and Recommendations

5.1 Introduction

This section of the study gives the summary of findings, conclusions and recommendations for further research.

5.2 Summary of Findings

Descriptive research design employed in this study allowed for quantitative data to be collected. The data was analyzed through correlation and regression analysis to find out the nature and extent of relationship. Majority of the manufacturing firms listed on the NSE disclosed environmental activities of their firms. This is because the mean disclosure index was at 58%. The practice of environmental accounting and reporting is positively correlated with profitability. Firms that practice this aspect of accounting and reporting expect more profitability levels. The other independent variables; liquidity and leverage also have a positive relationship with profitability. 27% of the variation in the firm profitability as measured by ROA is explained by the independent variables of the study; LQ, LV and EARI.

5.3 Conclusions

This study has shown that Environmental Accounting and Reporting practices has a positive relationship with profitability of manufacturing firms listed on NSE. Manufacturing firms listed on the NSE should manage their impact on the environment and engage in public disclosure of their impacts and activities on the environment. The variables considered only contribute 27% of the overall profitability of manufacturing firms. The firms should therefore use environmental reporting and accounting practices as part of their strategy for profitability. Other factors that affect profitability should be used together with environmental accounting and reporting practices to enhance profitability since the other factors affecting profitability contribute 73% of the variation of profitability as measured by ROA.

5.4 Recommendations

Based on the findings of this study, the following recommendations are hereby given:

  1. A detailed and well spelt out environmental disclosure theme and evidence must be established to provide firm foundation for corporate social and environmental disclosures among companies. Also there is need for standard setting bodies to set up guidelines or principles or accounting standards in other to improve the financial and non-financial environmental disclosures of companies in Nigeria
  2. The study also calls for more efforts to be taken on the part of government to encourage managers on the need to embrace environmentally friendly practices in order to restore and guarantee a conflict free corporate atmosphere needed by managers and workers for maximum productivity. More so, funds expended in settling disputes could be applied to enhance corporate liquidity while management is able to plan better and make decisions when it is not engrossed in disputes.
  3. More so, adequate measures should be put in place to encourage companies to imbibe the culture of corporate environmental audit. This process (corporate environmental audits) systematically assesses how well a company’s environmental management practices conforms to green production goals and help diffuse green production practices throughout the organization.

Project Material Download

6,000 Naira

The Complete Material Will Be Sent to You in Just 2 Steps

Quick & Simple…

Step One Purchase

Make Payment (Through Transfer) of ₦6,500 to Any of the Account Below

Access Bank PlcAcc No: 0811003731
Samphina Academy
Current Account
Zenith BankAcc No: 1225513212
Samphina Academy
Current Account
PalmPay Main LogoAcc No: 8143831497
Samphina Academy
Digital Account

Or CLICK HERE To Pay With Debit Card

CLICK HERE To Purchase Material ($25)
Make Payment of 200 GHS to 0553978005 | Douglas Cloud Osabutey | MTN MoMo

Step Two Purchase

Send the Following Details on WhatsApp ( 08143831497) After Payment

  1. Payment Details

  2. TOPIC: Impact Of Environmental Accounting And Reporting On Corporate Performance In Nigeria

The Complete Material Will Be Sent To You On WhatsApp After Receiving Your Details
T & C Apply

  Contact Our Help Desk

Need a Different Topic? Perform a Quick Search

List of Related Works

Click on Any Topic to Preview the Content

Frequently Asked Questions

Is there any environmental accounting for oil and gas companies in Nigeria?

Though the above regulations exist there is no guideline on environmental accounting for firms in Nigeria, accounting and reporting on environmental issues are wholly voluntary. The level of environmental cost accounting by oil and gas companies is still too far from being satisfactory or meeting international standard practices.

What is the impact of environmental accounting on business value?

The results of the statistical analysis indicate that better environmental performance positively impact business value of an organization. Moreover, environmental accounting provides the organization an opportunity to reduce environmental and social costs and improve their performance.

Does environmental accounting information matter for performance?

The finding of this research is in agreement with the study of Azar et al (2014) which found a positive relationship between environmental accounting information and performance of the companies.

Should companies publish environmental cost information in their annual financial reports?

Publishing environmental cost information in the corporate annual financial reports of companies is therefore recommended by the researcher to enhance the practice of environmental cost accounting in the Nigerian oil and gas sector.

Samphina Academy

Samphina Academy is an Online Educational Resource Center that is aimed at providing students with quality information and materials to aid them in succeeding in their academic pursuit.